KEY POINTS:
There is an old investment saying: Buy in gloom, sell in boom. It is a credo that I live by, both as an investor and as an adviser.
Buying in boom is like doing your shopping on Christmas Eve - buying in gloom is shopping in the Boxing
Day Sales. Although the advice to buy in gloom and sell in boom is easy to give, it is harder to take. Most people do the opposite - they buy when markets are booming and sell into gloom.
This is mostly because of the noise of the markets. When a market moves upwards, people eventually start to talk about it. Whether it is property, shares or bonds, commentators are quoted more widely in the media and those with a vested interest, (real estate agents, share brokers, investment seminar providers) add to the noise.
At the same time friends, family, workmates and so on never lose an opportunity to tell you how much money they are making.
Most people ignore the noise for a while. However, people seem to be making so much easy money that the less sophisticated investors eventually buy in - just about the time that the market has peaked.
When the market turns down, they may be reassured for a while (they tell themselves that they are long-term investors) but eventually the negative noise is so great that they become rattled. The investment has not worked as the experts said and they are losing money - and so they sell.
This herd behaviour is the cause of great investment loss and pain. I much prefer the contrarian's approach: doing the opposite of what everybody else is doing.
Things are fairly gloomy at the moment - there is plenty of negative noise, markets are down, and confidence with them. So, is it gloomy enough to buy?
A few weeks ago, I outlined my view on property - I think that the property slump has a way to go yet in most places. There will be a few good opportunities in some places and if a good one arises, you should buy it. However, I think that most markets in most regions will slump further yet - there is not enough gloom in most property markets to buy yet.
Shares, however, are starting to look attractive. It is not yet time to sell the kids or mortgage the dog to plough everything into the market, but it is time to start to look for bargains.
You have to be careful because markets usually over-react - the momentum will often take a market lower than anyone really expects. Nevertheless, there are already some good companies "on sale".
Unfortunately, no one rings a bell to identify when the market has hit its bottom. Therefore you should not invest all of your money at one time.
Instead you should dollar-cost average. This means that you drip feed your available funds into shares over the next year or so. It is true that if you do this you will not hit the exact bottom but will instead make a series of good investments at a time which is generally good and with plenty of opportunities. Remember: only one person buys right at the bottom - a series of purchases around the bottom is a good strategy.
Creating wealth means being able to put aside the negative noise of the market and stand against the tide.
Those who really want to succeed will be putting on earmuffs and getting ready for the Boxing Day sales.
Each week best-selling financial author Martin Hawes will share his strategies to help grow your wealth. Email questions to: martin@wealthcoaches.net or andrea.milner@heraldonsunday.co.nz
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